Today's Stories

September 29, 2008

Paul Craig Roberts
Why America Should Listen to Ahmadinejad

Peter Morici
The Bailout and the Economy

September 27 / 28, 2008

Alexander Cockburn
How McCain Blew It

Linn Washington, Jr.
Alaska's Blacks and Palin: a Strained Relationship

Christopher Ketcham
An Israeli Trojan Horse

Mike Whitney
The People vs. the Banksters

Kevin Alexander Gray Race in the Race: Is Obama Shining Us On?

Anthony DiMaggio
The Unspoken War: Pakistan, the Media and Nuclear Weapons

Mary Lynn Cramer
Their Assets; Our Debts: How Economic Crises Are Overcome

Marc Levy /
Susan Erony
War Jokes Wanted: No Laughing Matter

Stan Cox
Livestock of Mass Destruction: Germ Labs in the Heartland

Saul Landau
Election Drizzle

Ali Khan
Meltdown in American Markets: an Islamic Perspective

David Rosen
The Great Fear: the Sexual Politics of Sarah Palin

Todd Alan Price
Bailing Out the Foes of Public Eduction

Matts Svensson
The Red and White Bird in Gaza

Ron Jacobs
Pakistan Through the Eyes of a Native Son

Robert Fantina
McCain and the Economy

Richard Rhames
Hank-ering for a Bailout

David Krieger
The U.S.-India Nuclear Proliferation Deal

Seth Sandronsky
Rethinking Charter Schools

Charles R. Larson
Dear Mrs. Abacha: a Nigerian Email Romance

Kim Nicolini
Sadism in the Desert

Poets' Basement
La Morticella, Holt, Moser and Buknatski

Website of the Day
The Great Schlep

September 26, 2008

Moshe Adler
Bailing Out Wall Street Won't Save Main Street

Bill Quigley
The U.S. War on Unarmed Working Mothers

Jonathan Cook
When Archaeology Becomes a Curse

Manuel Garcia, Jr.
Visions of Pinpoint Control: the Romance of Laser Weapons

Madis Senner
Why the Bailout will Fail

Brian Cloughley
US Raids in Pakistan: Violations of Sovereignty

Niranjan Ramakrishnan
Oh, Henry!

Joanne Mariner
Passport Fraud and Torture

Dan La Botz
The Financial Crisis: a View from the Left

David Macaray
Ralph's Management Indicted by Federal Grand Jury

Website of the Day
Nader and Obama Girl at the Office

September 25, 2008

Michael Hudson
The Insanity of the $700 Billion Giveaway

Sharon Smith
Democrats and Corporate Bailouts

Ralph Nader
Who Will Show Some Backbone Against the Bailout?

Christopher Ketcham
The Economy of Dead Sperm (or What I Learned From My Race-Car Grandpa Who Had No Bankers)

Eric Toussaint
Is Another Third World Debt Crisis in the Offing?

Robert Weissman
Getting Wall Street Pay Reform Right

David Estabrook
A Better Bailout Plan

Nikolas Kozloff
The Voyage of the SS Peter the Great

Steve Early
The High Price of Purple Dissent

Judith Scherr
Blue Helmets in Haiti

Laray Polk
South Ossetia and Abkhazia: Notes from the Inside

Website of the Day
Letterman Spanks McCain

September 24, 2008

Paul Craig Roberts
The Bitter Fruits of Deregulation

Nikolas Kozloff
Palin at the UN: a Tutorial from Uribe

Robert Weissman
The Financial Crisis: How and Why Congress Should Play for Time

Andy Worthington
The Guantánamo Trials: Govt. Says Six Years Not Long Enough to Prepare Evidence

Steve Conn
Will Nader's Warning be Acknowledged in the Presidential Debates?

Karyn Strickler
The $700,000,000,000 Power Punch

Diane Farsetta
Stealth Marketers Gone Wild

Dennis Loo
Poisoned Legacy

John Halle
Wealth Tax Now!

Khalil Nakhleh
Palestinians Under the Occupation

Website of the Day
Nader: Debate Crasher

September 23, 2008

Rev. Jesse Jackson, Sr.
Bail Out on This Bailout

Michael Hudson
Henry Paulson and the New Yazoo Land Scandal

Tariq Ali
Why was the Marriott Targeted?

Patrick Dyer
A Death Row Visit with Troy A. Davis

Franklin Lamb
Hezbollah and the Palestinians

Joshua Frank
Oppose Barack Obama? How Dare Thee!

Alan Farago
Pushing the Referees: How the Financial Crisis Occurred

Dave Lindorff
The Bailout Will Kill the Dollar

Tanya M. Kerssen /
Roger Burbach
Bolivia's Popular Upheaval

Harvey Wasserman
Nuclear Power Liabilities Dwarf Bush's Wall Street Bailout

Website of the Day
Hammered by the Irish: the Video

September 22, 2008

Michael Hudson
The Paulson-Bernanke Bank Bailout Plan: Will the Cure be Worse Than the Crisis?

Mike Whitney
Mushroom Clouds Over Wall Street

Christopher Ketcham
Let It Collapse!

Ron Jacobs
The Predators' Bailout

Anne-Marie McManus
Lost in the Rhetoric of Crisis

Robert Weitzel
The Twin Terrors of the Holy Land: a Sexy Fundamentalist and a White-Haired Zionist

Wajahat Ali
An Interview with Howard Dean

John Ross
A New Cold War Comes to Latin America

Steve Breyman
Does the U.S. Really Need Cluster Bombs?

Patrick Bond
On the Bellies of the Filth

Uri Avnery
Fly, Tzipora, Fly

Carl J. Mayer
An Open Letter to Michael Moore (AKA God's Pen Pal): Whatever Happened to Voting Your Conscience?

Website of the Day
Stop the Execution of Troy Anthony Davis

September 20 / 21, 2008

Alexander Cockburn
Is This the Stake Through Neoliberalism's Heart?

Michael Hudson
America's Own Kleptocracy

Pam Martens
The Wall Street Model: Unintelligent Design

Lila Rajiva
Putting Lipstick on an AIG

Mike Whitney
Full-Spectrum Breakdown

Richard Rhames
A Bailout to Nowhere

Bill Moyers /
Michael Winship
The NY Yankees and the U.S. Economy

Bill and Kathleen Christison
The Making of Recent U.S. Middle East Policies: a New Study of Neocon Influence

Susan Block
Palin as Venus in Furs: the Dominatrix Politics of Drilling and Killing

Robert Fantina
Republicans and Subpoenas: Never the Twain Shall Meet

Heidi Walters
Hung Up on Route 36: an 18-Wheeler and a Nuclear Cask

David Yearsley
Germany's Lost Organs: When Bigger Was Better

Raymond J. Lawrence
The Politics of Tribulation: Sarah Palin and the Rapture

David Rosen
One Billion Pills Later: Viagra at 10

David Michael Green
Living in Sarah Palin's America

Anthony Papa
Imprisoned Voters and the Elections

Niranjan Ramakrishnan
Freddie, Fannie, Daddy, Nanny

Howard Lisnoff
When We Notice the Homeless

John Goekler
Leaving Every Child Behind

Missy Beattie
Impalement

Dave Zirin
Leave Josh Howard Alone

Charles R. Larson
Holden Caulfield, Rest in Peace

Tim Matson
Too Big for His Birches: Woodlot Economics

Susie Day
Attack of the Angry Fetus

Poets' Basement
Corseri, Gibbons, Jenkins and Ford

Website of the Weekend
Dylan & Baez: Deportees

September 19, 2008

Steven T. Banko
McCain's Passion Play

Mike Whitney
The Point of No Return

Michael Hudson
The Dow Jones' Wonderfully Cheesy Addition

William Kaufman
Shattering the Glass-Steagall Act: the Bi-Partisan Origins of the Financial Crisis

Brenda Norrell
The Fall of Lehman Bros.: Blowback for Black Mesa?

Keeanga-Yamatta Taylor
The New Rhetoric of Racism: Why Won't Obama Call It Out?

Clifton Ross
Bolivia: Cleaning Up the Bull Ring

Dave Lindorff
Hang On to Your Wallets: the Government's About to Rescue Us!

Cynthia McKinney
Seize the Time!

Susan Hurlich
Storm Survivors: a Dispatch from Cuba

Michael Donnelly
Let's Hand It All Over to the Democrats (They Helped Create This Mess)

Website of the Day
The Crisis Explained

September 18, 2008

Benjamin Dangl
The Machine Gun and the Meeting Table

Harvey Wasserman
The Senate's Drill, Drill, Drill Scam

Susan Abulhawa
The Lobby Has Spoken: Biden and Israel

Robert Weissman
After the Fall: the Financial Re-Regulatory Agenda

Anne-Marie McManus
McCain's Cinderella: the Fetishization of Sarah Palin

Corey D. B. Walker
The Poverty of 21st Century Progressivism

William S. Lind
Senator O'Bush: Why Obama is Wrong on Iran and Afghanistan

Ron Jacobs
Washington's False Logic of Torture

Dave Lindorff
American and China: Joined at the Hip

Binoy Kampmark
How Damien Hirst Got Away With It

Website of the Day
An Invisible Army

September 17, 2008

Stephen Conn
Palin and the Politics of Big Oil

Forrest Hylton
Reactionary Rampage in Bolivia

Patrick Cockburn
Petraeus Leaves Iraq

Gregory Elich
Inside North Korea

Ralph Nader
How the U.S. Auto Industry Wrecked Itself

Franklin Lamb
The Palestinians of Shabra-Shatila

Pam Martens
The Gang's All Here: Bush, McCain and the Old Iran/Contra Team

Dave Lindorff
The End of the Blue Chip Economy

Peter Morici
The Damage Deepens

Stanley Heller
The Killing of Count Folke Bernadotte

Douglas Valentine
Rambling David Foster Wallace

Website of the Day
Free Cindy McCain!

September 16, 2008

Paul Craig Roberts
US Economy: Rudderless and Reeling from Direct Hits

Tiphaine Dickson
Citizen Palin: Why Sarah Palin Quoted Westbrook Pegler

Stan Goff
America is Now Rome: an Open Letter to Christian Troops in Iraq and Afghanistan

Uri Avnery
Tzipi's Choice

Michael Winship
Lipstick on Polar Bears

Jeff Halper
Warehousing Palestinians

Patrick Irelan
Bolivia Versus the Empire

Oscar Gonzalez
Who's Dumber? Ike's Refugees or Wall Street's?

Binoy Kampmark
Cheney and His Records

Fatemeh Keshavarz
Muslims are at Peace with You

Sen. Russ Feingold
Restoring the Rule of Law

Website of the Day
The Next Great Rock Band?

September 15, 2008

Mike Whitney
The Tumbrils Roll at Dawn

Peter Morici
Toxic Lehman

Patrick Cockburn
Take Another Look at the Surge

Charles R. Larson
The Maverick Has No Clothes

Jonathan Cook
The Expulsion of Palestinians from Jaffa

Nikolas Kozloff
Racist Rhetoric in Bolivia

Roger Burbach
Morales Confronts the Insurrection: Bolivia and the Echoes of Allende

Helen Redmond
Where's the Health Care Bailout?

David Michael Green
The Democrats Do Poland

David Macaray
The Boeing Strike

Ralph Nader
Remembering Peter Camejo

Website of the Day
The Ballad of Sarah Palin

September 29, 2008

The End of the Strike-It-Rich Wall Street Culture

The Bailout and the Economy

By PETER MORICI

The US trade deficit has grown to $US700 billion, which of course is money not spent on US goods and services. This has killed off well paying jobs, has slowed the economy and created unemployment.

Net imports from China and oil account for a large proportion of the US deficit and it is this that America simply must fix to rev up growth.

Yet the problem is greater than that. Even with those problems addressed, if America doesn’t fix the banks, it won’t get the economy going. Properly functioning credit markets and solvent banks are needed.

The trade deficit and banking crisis are interconnected however. The trade deficit pumps lots of dollars abroad that come back as purchases of US bonds and other securities. Foreign holdings are now about $US6.5 trillion – growing at about $US50 billion each month – and in recent years that has created cheap capital which in turn has encouraged over-leveraging from Main Street to Wall Street. It has affected homeowners and consumers from Peoria to Park Avenue.

The US economy is in crisis and to address that we need to look at three interconnected things: China, oil and the banks.

Jobs losses have been recorded every month since last December and nearly all the forecasters have the economy cycling down. Real incomes of average Americans have been falling and thousands of homeowners are going through foreclosure.

After Bear Stearns, Lehman, AIG, Fannie Mae and Freddie Mac, money centre banks have scaled back or stopped securitising the loans of their regional peers. There is a chronic shortage of conventional mortgage financing and business loans. Regional banks don’t have enough money to lend.

Last week, credit markets seized up, prompting the Treasury to propose a $US700 billion bailout that we must implement. Yet, even as some of America’s most venerable financial institutions fail, changes in management practices, compensation and corporate governance have been inadequate.

On Monday, the foreign flight from Treasuries was almost a run on the dollar, and conditions for yet another crisis are ripe.

This is a reality of doom and gloom, but there are solutions. To dig out of this mess, America has to address the trade deficit and how the banks are run. And in addressing that trade deficit, first we must look at what is happening with China.

China

China maintains a 40 per cent undervalued yuan by buying dollars and other currencies with yuan. Those purchases come to more than $US600 billion a year, or about 17 per cent of China’s GDP. This gives Chinese-based manufacturing a cost advantage having little to do with cheap abundant unskilled labour.

This also encourages US companies to move high productivity, well paying jobs to China, which in turn drives down US GDP and wages. Those job losses have little to do with China’s “cheap labour advantage” or what economists call comparative advantage.

The cycle continues. Beijing trades the dollars it obtains through currency market intervention for Treasuries and other US securities. This suppresses long US interest rates and in recent years, this has also decoupled the federal funds rate from long rates, helping to create the cheap, easy credit that led to foolish mortgages and reckless leveraging. This can be seen as an inverted yield curve.

US diplomacy has failed to persuade China to change its currency practices, but the alternative to diplomatic measures is to tax dollar-yuan transactions in proportion to Beijing’s intervention. That would reverse the effects of Chinese intervention in markets and encourage free trade based on comparative advantages. I believe the same should apply for other countries that manipulate their currencies.

Realigning currencies would raise US GDP by $US300 billion and bring back many well paying jobs. It would furthermore permit the Fed to effectively influence long-term interest rates once the present financial crisis is resolved.

Oil

The other big elephant in the trade deficit room is oil. The US spends over $US400 billion a year on imported oil, and a good deal of that goes into autos.

First and foremost, Americans have done too little to conserve on gasoline. CAFE standards (Congress's Corporate Average Fuel Economy regulations) were unchanged for 32 years, and significant breakthroughs in engine technology were used to boost horsepower instead of improving fuel economy.

Finally in 2007, Congress mandated fleet averages be raised to 35 mpg by 2030 but America can – and should – seek to accomplish much more. Simply put, America has the technologies but has not applied them. Lighter materials, advanced hybrids, natural gas and eventually hydrogen can all contribute to solutions.

The US needs a three-pronged strategy. The first part is easy: higher CAFE standards. The second part is to provide product development assistance for domestic-based manufacturers, conditioned on patent sharing and first production runs in the United States. The third is a clunker trade-in subsidy, which would be a tax credit or payment to buyers who trade-in and destroy cars based on their remaining years of useful life and the trade-in mpg gain.

These measures would provide incentives to develop world class alternatives in personal transportation, produce the vehicles and components in the US, and create a new export industry. America is not going to do this with mass transit or on bicycles.

Epic historical transformations in transportation – canals, railroads, and air travel – have often required a boost from government, because switching costs are too high for incumbent firms. Someone is going to make these cars and their components eventually. The US government needs to ask whether Americans make them or pay dearly for imports.

Banks

Banking has irrevocably changed. 30 years ago banks took in deposits and loaned out money, it was nice and easy. More recently however, regional banks or their brokers wrote loans, which were then sold to money centre banks and securities dealers, which were then securitised for sale to fixed income investors. It was called efficiency, but the origins of the subprime crisis are clear.

An overabundance of cheap funds from the flood of US dollars abroad, created by the trade deficit, came back as foreign purchases of US Treasuries and securities. Fragmentation of the lending process meanwhile separated those with a stake in loan performance from those who wrote and those who securitised loans.

So-called performance-based compensation on Wall Street – the “heads I win, tails shareholders lose” bonus schemes for bankers also encouraged the whole process to speed up. Excessively complex and poorly conceived collateralised debt obligations and credit default swaps were added to the mix.

Brokers and bankers bet the shareholders’ and investors’ money for personal and company gain. Performance based compensation schemes furthermore made writing “plain vanilla” bonds against good mortgages and business loans unattractive.

All this begot dodgy loans, misrepresented risk in securities, inadequate default insurance, loan and bond failures, and the subprime crisis.

Banks and securities dealers got stuck with lots of toxic paper that they created with subprime and Alt-A loans. Money centre banks and securities dealers backed off securitising even good loans and a shortage of conventional mortgages and business loans ensued, even for prime customers.

Housing prices are now down nearly 20 per cent, far more than they were during the S&L crisis of the early 1990s. Bear Stearns, Fannie and Freddie, Lehman Brothers and AIG have collapsed or are in trouble. And now there is a massive federal bailout proposed.

The bankers that created the crisis are meanwhile escaping with their huge bonuses. Some even continue to have big paydays. This is not capitalism – which functions on rewards for good decisions and penalties for bad ones – it’s a recipe for repeated bank failures, government takeovers and the failure of our market economy.

Solutions

Cultural changes at our banks and securities firms are required. Into the trash bin should go performance based compensation schemes that encourage bankers to act for their own enrichment against the interest of shareholders and clients. The Wall Street culture of entitlement must be changed and compensation has to be aligned with other industries as well as shareholder interests.

Bankers have been betting house money in a strike-it-rich culture that simply has to end. It is a corporate governance issue and while the government can mandate change, even define broad outlines, Wall Street has to articulate the details.

To fix credit markets America has before it special Fed lending facilities and the new proposed new $US700 billion Treasury rescue program to restore liquidity. What America doesn’t have, and needs, however are “pay-to-play” requirements for banks and securities dealers participating in rescue programs.

Money centre banks should be required to securitise regional bank mortgages and business loans – this time creating plain vanilla bonds. This would minimize the cost to taxpayers by raising housing prices and would reduce risk.

Principles-based banking reform is also necessary. Accountability for loans throughout the lending and securitisation chain is needed and as part of this there must be responsible credit marketing and consumer education.

America needs to stop consuming more than it produces. America needs to stop running huge trade deficits and borrowing so much from the rest of the world to pay for it.

America needs to stop encouraging manufacturers to leave the country with a dollar artificially overvalued against the yuan and other Asian currencies.

America needs to curb its oil imports by encouraging automakers and consumers to make and buy radically more fuel efficient vehicles.

America needs to require prudent and conservative banking practices and end the strike-it-rich, cowboy and bet-the-shareholders’-ranch culture on Wall Street.

The measures I am calling for are practicable and implementable: a tax on yuan-dollar transactions to achieve realignment in exchange rates; a three-pronged program to build fuel efficient vehicles; a linked participation in the Fed and Treasury programs for banks that provide vital commercial banking services; changes in bank leadership to affect reform and create a culture of service and accountability in the financial services industry.

Not too long ago, the management of the US economy and the resiliency and creativity of American capital markets were examples to the rest of the world. Now today these are things America can hardly be proud about.

America has the skills, the creativity and a magnificent work ethic to restore its vibrant economy. America can’t dally however: the American model of democratic capitalism is increasingly challenged by China and other nations. Making tough choices – and abandoning ideology, dogma and partisanship – is the only way to accomplish the reforms needed to get the American economy back on track, and again earn respect around the globe.

More importantly, these tough choices are essential to ensure the legacy of a lasting prosperity for generations to come.

This is an edited version of a speech delivered to the New York Mercantile Exchange on September 25.

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the US International Trade Commission.

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